Fact or Fiction?: Changes to title deeds laws in Cyprus

Monday, August 01, 2011

“New legislation in Cyprus should put an end to the problems with property titles"

It should be a favourite choice for expats, retirees and holiday homeowners, but the property market in Cyprus has been blighted by delays in issuing title deeds. Can a new law sort the situation out and get us back in love with Aphrodite's Isle?

With some property buyers in Cyprus waiting, in the most extreme cases, for up to 20 years for the title deeds to their property, a change in the law has been long overdue.

Without the title deeds, no matter what agents or developers might say to the contrary, the owner could encounter problems when they try to refinance, renovate or sell their home. It's a bureaucratic problem that was exacerbated by the sudden boom in the property market about a decade ago and which mainly concerns new-build properties. Some 130,000 buyers, of whom around 25 per cent are from overseas, are still waiting for the document that proves their ownership of their home, years after they have completed on the purchase of that property.

The delays have opened the path for all sorts of corruption, with vendors selling illegally-built old properties that should never have changed hands, and developers taking out loans on newly-built properties for which the new owners are liable if the developer defaults on his payments. “It used to be the case that if you wished to sell a property prior to the title deeds being issued, you would ask the developer to cancel the original contract and he would make a charge for drawing up a new one between the prospective buyer and him,” says Tom Cowell, a UK-based agent who sells property in Aphrodite Hills, where he bought an off-plan apartment in 2002 and sold it seven years later before the title deeds were issued. “I followed this procedure and the transaction was quite smooth. But since the credit crunch hit and banks became reluctant to offer mortgages, some developers resorted to unscrupulous practices,” says Cowell.

Greater security

Now, the new and long-awaited title deed legislation has been passed, coming into force on July 31st, which should give property-buyers in Cyprus the peace of mind – and a vital piece of paper – that closes the door to corruption and uncertainty, and gives a boost to an ailing property market. By providing greater security of contract, and by changing the planning laws to speed up areas of interminable red tape delay, the new law will provide the customer protection that the system has so far lacked – or so some property agents believe.

“New legislation will help existing property-owners and also push developers to fulfil all their obligations so that buyers gain their title deeds,” says Jonathan Salsbury, sales manager for the UK end of the Cypriot development company Cybarco. “This
is good news for both the property owner and also the government, as it will bring in welcome extra revenue for the country.”
For investors in long-established,reputable developers – Cybarco, for example, have been building in Cyprus for 60 years – title deeds have not been a problem. “But the new law will bring other developers into line,” says Salsbury.

There are rumours that buyers in high-priced Cypriot projects – all those Russians spring to mind, seeking to deposit a few million in beachfront mansions in Limassol – have been able to benefit from a two-tier system until now, with a separate branch of the Land Registry set up to deal with the title deeds for prime properties. Certainly, on well-established resorts such as Aphrodite Hills, buyers are less likely to come across problems. Aphrodite Hills' title deeds have been issued for the individual plots in the different “villages” on the resort, and they expect the Land Registry to take 12 to 24 months organising the deeds for the individual apartments and villas.

Whether it's true or not that big budget investors are being treated more quickly, it does appear that investors in lower-priced properties on new developments have suffered most, says Stelios Kadi, Real Estate Manager for Elea Estate in Paphos, a new upmarket golf development with a Nick Faldo-designed course. “Buyers in cheaper projects, where most of the developers were not professionals, haven't usually done proper due diligence to check what debts are on the land or properties. All projects by reputable developers have been completed and titles issued, albeit with a delay in some cases,” he says. “The whole concept of the new law is to further protect the purchaser, especially those who have invested in projects under- development, by extending the period a contract may be deposited with the Land Registry. It allows the purchaser extended legal rights if the developer disappears or is unable to complete the project,” says Kadi.

He adds that even without the title deed, the owner is covered by their contract, which is deposited against a title with the Land Registry and shows who is entitled to the property. “The contract acts as an encumbrance and, with the new legislation, may even supersede a mortgage by the financing bank,” he adds, meaning a developer cannot claim to still own the land the property stands on, even if the buyer has yet to receive the title deeds.”
Doubts remain

But Nigel Howarth, the editor of Cyprus Property News, is dubious as to whether this new legislation is the answer to everyone's prayers. At present, it takes about fi ve years on average to receive the title deed to a new property – at least a year of that delay caused by developers having to apply for a division permit, to divide a block into individual flats with title deeds or a large plot into smaller plots for individual properties.

“The interior minister has said he will cut out the red tape, shaving about a year off the wait, but that's all,” says Howarth. “Also, the new legislation is complex and no one yet knows how the Land Registry will implement it. But it should provide additional security to people buying property in Cyprus, especially if the properties are built on mortgaged land,” he adds. “Developers in Cyprus mortgage the land on which they are building to use that money to kickstart the project and, at present, the buyer can hand over the full asking price for that property, but there is no requirement for the developer to pay off the mortgage on the land,” says Howarth. “If he can't pay and the bank forecloses, the owner can lose their home – and there's still no stipulation under the new law that he developer must pay off their mortgage,” Howarth adds. “It means that buyers should get a rustworthy, independent lawyer to see if the land is mortgaged. Or best of all, buy a resale property which already has a title deed.”

Loucas Kitrou, the Real Estate Manager at Aphrodite Hills, agrees that the new legislation – which aims to deal quickly with all the properties that do not currently have title deeds, mainly due to irregularities with building permits – “is only as good as the bureaucracy handling thousands of applications, which is doubtful.” “The other constraints are that the new law provides for a six-month period when applications will be accepted and applicants must pay fees to make good their building permits,” adds Kitrou. “Both the time and the financial aspect will deter a lot of people from applying in the current economic situation.”

What is certain is that Cyprus's property market has not escaped the downturn that has affected most popular overseas destinations, suffering price falls and a glut of unsold new holiday homes that aren't of interest to domestic buyers. “The title deed issue has most definitely put off buyers from coming to Cyprus,” says Nigel Howarth, “but foreign buyers are starting to return to the market, with numbers up by 15.7 per cent on last year,” he adds. “The law changes will improve matters, but by how much, we just don't know yet.”